US Dollar sees mild gains on quiet Monday, markets await fresh clues

DXY Index is neutral, trading at 104.25, setting up for a quiet weekly start.
Weaker data drives Fed officials' cautious stance, and financial conditions are improving.
Markets continue to bet on an easing cycle starting in September, FOMC minutes on Wednesday will be key.

The US Dollar Index (DXY) begins the week on a quiet note, trading at 104.25, registering negligible changes despite the recent soft performances in data. The Federal Reserve (Fed) still showcases caution regarding premature easing as financial conditions continue to loosen.

The US economy exhibits signs of unyielding stability, despite recent data revealing some underperformance. The Fed, nonetheless, remains vigilant, hesitant to resort to premature easing as the financial conditions persistently ease. Inflation and Retail sales data from April disappointed last week, and markets will set their sight on S&P data later this week to gain more insights into the US economy’s health.

Daily digest market movers: US Dollar holds its ground, markets await drivers

Fed officials remain cautious in terms of a timeline for cutting interest rates, incoming data will set the timing of the easing cycle.
Odds of a cut in June and July still remain low, so investors are delaying the first cut to September.
Treasury bond yields are rising with the 2-year yield seen at 4.83%, the 5-year yield at 4.44%, and the 10-year yield at 4.42%.

DXY technical analysis: DXY wrestles with momentum as both bulls and bears battle for dominance

The indicators on the daily chart reflect an undecided market that awaits drivers. The flat position of the Relative Strength Index (RSI) in negative territory discloses the conflict within the market, detailing the struggle between buyers and sellers. Moreover, the Moving Average Convergence Divergence (MACD) histogram displaying flat red bars supports this idea of bears trying to wrest control over the short term. However, the stalled nature shows a lack of decisive momentum in either direction, reflecting a market awaiting firm direction.

The Simple Moving Averages (SMAs) partially tell a similar tale. The index trading below the 20-day SMA indicates that bears have recently gained some ground. However, the fact that DXY remains above both the 100 and 200-day SMAs suggests that the longer-term bullish momentum cannot be entirely dismissed.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.